Insurtech startup Micruity has secured $6.47 million CAD ($5.1 million USD) seed capital in its mission to create easier access to American 401(k) plans.
The startup claims it can help “pensionize 401(k) plans” through its income connectivity platform. The goal is to make it easier for insurers, asset managers, and record keepers to communicate and share information as they offer annuity products to customers.
Micruity’s seed round will help the startup officially launch its platform in the second quarter of this year.
Annuities are a series of payments made at intervals and are mainly used for retirement purposes to help individuals address the risk of outliving their savings. Very recently, the use of annuities in 401(k) has become possible as investment groups like BlackRock have pushed for it, and the United States (US) government passed the 2019 Secure Act aimed at eliminating “companies’ fear of legal liability if the annuity provider were to fail or otherwise not meet its obligations.”
Since the act passed in late 2019, insurers and asset managers have been adapting and adding the products to their lineup. In fall 2021, J.P. Morgan Asset Management, for example, launched a platform to offer annuities in 401(k)s.
Toronto-born Micruity is ready to tackle this burgeoning field by being the stop-gap between insurers, asset managers, and record keepers, which need to share detailed information in order to offer the annuity product. It partners with life insurers and fund managers, and calls itself the “end-to-end infrastructure powering institutional lifetime income products.”
Micruity co-founder and CEO Trevor Gary told BetaKit that his company is the connection between organizations so they can access and share vast amounts of data.
Micruity’s seed round will help the startup officially launch its platform in the second quarter of this year.
The round was led by SixThirty Ventures and saw participation from Alpine Meridian Ventures, Great North Ventures, and Altari Ventures. A group of insurance and investment firms also joined as strategic investors: Allianz Life Insurance Company of North America (Allianz Life), Franklin Templeton, Pacific Life, and Western & Southern Financial Group.
The strategic investors are set to start using Micruity’s platform once it launches.
SixThirty Ventures Principal Joel Brightfield is joining the newly-formed Micruity board of directors alongside Gary. The seed round brings Micruity’s total funding to date to $8.36 million CAD.
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It’s been a five-year journey for Micruity to reach its seed round and imminent launch – one that started with the company exploring options in the Canadian market. After spending a year building out its tech, Micruity saw a better market opportunity in the US given the conversations happening around the 401(k)s.
But there were still two problems: the legislation needed to be passed, and the financial and insurance industries (often antiquated when it comes to digital transformation) needed to become more comfortable with the product as well as build the tech behind it into their operations.
So Micruity set about speaking publicly about the perceived advantages of the annuity product, and after the legislation was passed, working with investment and insurance groups to familiarize them with Micruity’s product – some of which have now become strategic investors and customers.
“We actually took a risk at the start of 2019 because that legislation wasn’t there,” said Gary. “What that enabled us to do, as a small company, was to become the thought leaders when the legislation did pass at the end of 2019.”
“We were kind of a step ahead of other folks who were thinking about this market, we’d already established ourselves, we had already made the right connections,” the CEO added. “And we were already seen as the company that was going to be the operational solution to power the ‘pension-ization’ of the employees’ saving plan.”
Micruity is part of a small group of tech companies looking to support insurers, asset managers, and record keepers as they deploy these annuity products.
“401k plans were designed as retirement savings plans, but today most Americans rely on these plans as their sole source of retirement income, leaving them vulnerable to market corrections outside their control,” said Gary. “Annuities are an attractive alternative that can take some of the guesswork out of retirement planning and help us close the savings gap for Americans.”
Annuities generally involve entering into a contract with an insurance company, where the consumer hands over money in exchange for regular payments. While it’s argued they can address the risk of outliving their savings, they also come with fees and additional charges.
Uptake of annuities in 401(ks) has been slow, partly due to the pace of insurance companies, asset managers and employers, but also reportedly due to workers not understanding annuities, and an aversion to handing over retirement savings in one lump sum. The use of annuities in 401(ks) is expected to increase this year.
While Micruity has its hands full with the US market, Gary also expressed interest to launch the platform in Canada at some point in the future – when the time and market is right.